Counterparties: Passing Abenomics

June 13, 2013

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The world is questioning the effectiveness of Abenomics — the economic policies advocated by Shinzō Abe, the prime minister of Japan. Abe’s plan to revitalize the country’s sluggish economy seemed to be working, as reflected in the Nikkei which soared to around 15,100 in May from 10,395 in December. That has changed: the Nikkei fell 7% yesterday and is down 20% since its May high, closing at 12,445 Thursday. Swiss hedge fund manager Felix Zulauf said Japan would  “cause the next big global crisis”.

The reality is it is probably too soon to tell whether Abenomics is working. The prime minister’s three-pronged plan is certainly ambitious. In order to do “whatever it takes” to hit a 2% inflation target, the Bank of Japan is flooding the markets with money and the government has implemented major fiscal stimulus. Last week, Abe proposed a growth strategy that includes a target to lift per-person income by 40% over 10 years and “a series of deregulated and lightly taxed zones around the country”. Abe has said this is the most important of the three prongs, but The Economist notes that the announcement “left many disappointed by its timidity”.

As far as growth goes, David Keohane points out that “it’s hard to escape the effects of demographic determinism.” Japan has an aging population, a very low fertility rate, and Abe has not yet proposed a great solution to fix this.

What Japan does have going for it is low unemployment, although as Noah Smith has pointed out, a lot of that has to do with falling real wages and women opting out of the labor force. But Joseph Stiglitz is still bullish on Japan, noting that “we see that even after two decades of ‘malaise,’ Japan’s performance is far superior to that of the United States”  — if you consider a broader range of factors like inequality and life expectancy. The Nikkei is still up almost 20% since the beginning of the year.  — Shane Ferro

On to today’s links:

The Fed
Ben Bernanke would very much like you to stop overreacting to what Ben Bernanke says – Jon Hilsenrath

With 3 unemployed workers for every job opening, “the labor market is still pretty much murder” – The Atlantic

New Normal
The biggest economic mystery of 2013: What’s up with inflation? – Matthew O’Brien
Everyone gets a college degree! (sort of) – NYT

Junk bonds and treasuries: negatively correlated no more – Sober Look

How the music industry explains American inequality – Alan Krueger

The problem of investing in the US Postal Service – WSJ
Rival hedge funds are pretty excited about SAC’s problems – Reuters

Big Brother Inc.
Washington’s double standard: “Secrets are sacrosanct until officials find political expediency in leaking them” – Jack Shafer
The secrecy industrial complex – David Rohde

Josh Barro takes down CAP’s recommendations for the economy – Josh Barro

The geography of hunger in America – Atlantic Cities

Fiscalists vs market monetarists, a bloggy taxonomy – Cardiff Garcia

CEO’s aren’t that excited about the US economy – Business Roundtable

And, of course, there are many more links at Counterparties.

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